Australian Dollar, AUD/USD, Q2 Business inventory, Covid – Talking Points
- Risk-sensitive Australian Dollar unchanged as APAC trading kicks off
- Australia set to report Q2 business inventories and company profits
- AUD/USD at 26-day EMA resistance following big gains last week
Monday’s Asia-Pacific Outlook
The risk-sensitive Australian Dollar is edging higher versus the US Dollar as Monday’s Asia-Pacific session kicks off. The Greenback is unchanged against most of its peers. APAC traders may be digesting Fed Chair Jerome Powell’s comments from Friday’s Jackson Hole Economic Symposium. Mr. Powell’s message hinted that tapering QE asset purchases will likely commence this year but failed to give a clear timeline. September’s FOMC meeting will likely deliver that message.
Treasury yields dropped on Friday but remained higher for the week, perhaps reflecting a brightening economic outlook. Wall Street stocks also closed higher into the end of the week, with defensive stocks carrying gains. The Federal Reserve chief noted the United States has made substantial progress towards its dual mandate, with its inflation target already hit. Mr. Powell did, however, make clear that rate hikes will need to meet a higher standard of economic progress. That is likely fueling some upside in stocks.
Australia is set to report second-quarter business inventories and company gross profits today. Analysts expect business inventories to cross the wires at 1.3% and company gross profits at 3.0%, according to a Bloomberg survey. The Australian Dollar would likely receive a tailwind if these data prints beat estimates. Economic data outcomes have deteriorated for the Australian economy in recent weeks, highlighting the costs of ongoing lockdowns, many of which were put in place earlier this summer. Retail sales dropped 2.7% in July.
New South Wales (NSW) is the hardest-hit state in Australia and continues to report troubling case figures. The state, which includes Sydney, reported 1,218 new locally-sourced cases on Sunday. Australian Treasurer Josh Frydenberg warned that the pandemic will cost jobs and close businesses if state borders remain closed within Australia, suggesting state premiers stick to a national plan. That plan agrees to do away with broad lockdowns once Australia hits a 70-80% vaccination rate.
Today’s economic docket is rather light outside of Australia, with Japanese retail sales and industrial production data out of Thailand the only events due. APAC traders will be eying manufacturing PMI data out of China on Wednesday, with analysts expecting the factory gauge to slow. The US non-farm payrolls report will be this week’s main event. The jobs report is slated to cross the wires on Friday.
AUD/USD Technical Outlook:
AUD/USD is seeing little movement to start the week off after a big +2.51% move last week. Given last week’s upward velocity, prices may be overextended. That could open the door for a pullback this week. The Relative Strength Index (RSI) is above 70 on the 1,2 and 4-hour time frames. An RSI read above 70 represents “overbought” conditions.
Moreover, the falling 26-day Exponential Moving Average (EMA) appears to be capping upside. Prices failed to overcome the EMA earlier in August. If an upside break does occur, however, a descending trendline will come into focus. Alternatively, a downside move may see prices find support at the 61.8% Fib retracement.
AUD/USD Four-Hour Chart
Chart created with TradingView
Australian Dollar TRADING RESOURCES
— Written by Thomas Westwater, Analyst for DailyFX.com
To contact Thomas, use the comments section below or @FxWestwateron Twitter